MUMBAI: Any general's nightmare is battle on multiple fronts. When RBI Governor Duvvuri Subbarao presents the midquarter review of monetary policy on Friday, he not only has to convince the market that he is close to winning the two-year battle on inflation, but is also prepared to fight the sinking rupee, dwindling investments, soaring government borrowings and ensure that flagging economic growth does not collapse completely.

And, all this without leaving the inflation front open again. The burden is falling on the central bank to provide relief for every ailment as businesses and investors have almost given up on the government to act after the debacle over foreign investment in multibrand retail and policy inertia.

The tools that Subbarao has to do with are few — a cut in policy rate, reduction in cash reserve ratio, and throwing a portion of the $300-billion, but deceptive, forex reserves at the market.

The regulator spelt out a series of qualitative measures to arrest the rupee slide on Thursday. But no one is expecting an interest rate cut, thanks to inflation that has remained at an average of 9.5% for nearly two years and Subbarao's breaking away from consensus and his advisors on holding rates.

There is a half-hearted hope that CRR, the portion of deposits that banks keep with the RBI, could be cut, with the Indian central bank taking a cue from others, including China, that have eased this reserve requirement.

As he broke away from consensus in the past in fighting against inflation, will he do so to revive growth too? "It an unfortunate situation where the monetary policy is doing double duty," said Samiran Chakraborty, head of research, India, at Standard Chartered.

"The fiscal policy is neither supportive of fiscal management nor is it doing anything to bolster growth, and policy movements have been more accentuated on both the sides, in raising as well as cutting rates, because of a weak fiscal policy."

Some are calling for a cut in CRR since the government, despite the RBI's autonomy, may be prodding it to partially ease the pressure on the system because of its failures.

Manufacturing prices still rising

"A CRR cut is desirable for two reasons, one it improves sentiment and the other it is not antithetical to it's monetary stance as the private sector is not borrowing and this money will support the government's enhanced borrowing programme," said Madan Sabnavis, chief economist, Care Ratings.

The repo rate, the rate at which the RBI lends to banks, is at 8.5% after 13 increases and the cash reserve ratio is at 6%. But rate increases and a slump in investment due to policy paralysis have led to industrial output shrinking 5.1% in October.

Inflation as measured by the wholesale price index is at 9.1%, though food inflation has eased to a fouryear low of 4.35%. But manufacturing prices, which the RBI looks at for its cues, are still rising.

"It would be strange for the RBI to ease liquidity conditions or monetary policy when core inflation is running at 1.2% on a monthly basis, and the rupee is sinking like a stone," said Jahangir Aziz, Asia economist, JPMorgan Chase.

"In such a situation, central banks typically tighten, not loosen monetary policy, to squeeze out forex short-selling. Lowering the funding cost of short INR position will just add to the already extreme pressures on the currency. The RBI is unlikely to administer experimental medicine on Friday and, therefore, it just pauses and eases liquidity with tactical open market operations."

The rupee, the worst-performing currency in the region, opened at a lifetime low of 54.20 on Thursday before closing at 53.64 as overseas flows dry up while consumption of imported items remain strong.

There have been calls to the RBI to defend the currency and it has done so since Dec 2, by selling dollars and buying rupees.